The usefulness of share prices and inflation for corporate failure prediction

Abstract

The present paper critically appreciates the usefulness of share prices for corporate failure prediction
and suggests utilising macro-economic variables such as inflation to improve the predictive ability of
existing models. The results indicate that the predictive ability of share price prediction models improves
when adjusted for inflation, in addition, an assessment of the usefulness of the model derived through this
research when inflation is omitted shows that only 50% of companies can be predicted as likely to fail
more thn four quarters prior to the actual event.